OREANDA-NEWS. November 26, 2009. Net interest income increased to RUB373bn (+38.4% YoY), while operating expenses decreased to RUB 171bn (-2.2% YoY). Provisions, at RUB 305bn, erased almost all operating income, and net profit totaled RUB17.1 bn., reported the press-centre of OTKRITIE FC.

View: The numbers demonstrate a continuation of the trends observed in 9M09, with some additional positive twists. The decline in retail loans was halted in October, and some regions even registered retail growth. The build-up in overdue loans slowed visibly (4% of the gross portfolio vs. 3.7% in 9M09). On our estimates, the net interest margin stood at c7.8%, which is a very healthy level, while overhead costs still showed a YoY decline (the cost-to-income ratio was 34.4%).

Valuation: Sberbank trades on a 2010E P/BV of 2.1x, which is at a premium to EM peers. However, we argue that this is justified, given a superior franchise and core profitability. Normalized earnings (2012-13E) yield P/BV of 1.2-1.4x, and P/E of c7x. Our target price of US3.3 is based upon a target P/BV, comparable P/Es, and an abnormal earnings model.

Action: The official launch of a sponsored DR program will be a positive trigger for stock performance, and could take place by year’s end. We would buy on the current dip.